IRR using the Newton Raphson Method

Popular computer application such as MS Excel has made analytical solutions easier to obtain. In the past, solving a polynomial of higher degree than 3 was both time consuming and cumbersome. The easiness that MS Excel offers has, however, a drawback in terms of our understanding of methods and procedures. Take for example, the computation of an internal rate of return (IRR). Easy done with a financial calculator or with the Excel function =IRR(c0, c1, ..., cn, guess). The easiness is still involved for more complex problems such as obtaining an IRR from a combination of time-limited cash flows and a perpetuity. Using Goal seek does the work.
This semester I am again teaching Corporate Finance based on Principles of Corporate Finance by R.A. Brealey, S.C. Myers and F. Allen. In chapter 5 on pages 139-141 of the 10th Global edition, they are elaborating on why the IRR rule is unreliable for mutually exclusive projects. They present three projects (F, G and H) with F showing the highest IRR but the lowest NPV. In the building up of the argument, they report the IRR and the NPV for each project. Unfortunately, the majority of my students does not see how they got their IRR for the incremental cash flow between G and F. While the IRR for a perpetuity is easy to obtain, an IRR of a project with cash flows over a limited number of years followed by a perpetuity is not.
The cash flows for F are -$9,000 at t=0, $6,000 at t=1, $5,000 at t=2, $4,000 at t=3, and 0 afterwards. There is a unique IRR for F since there is no a shift in the sign of the cash flows. Using a financial calculator, the IRR is 33%. What about if we are left with no other alternatives than solving it by hand? How we go about obtaining the IRR? I will make the problem more complex by looking at the incremental cash flows on page 141 of the same book and edition. But before, let us get the IRR for G, which cash flow is a perpetuity.
The cash flows for G are -$9,000 at t=0 and $1,800 for ever. The IRR is the rate that makes NPV=0. Therefore, from 0=-$9,000+($1,800/IRR), we get IRR = $1,800/$9,000 = 0.2 or 20%.
Comparing F with G in terms of NPV, G is better than F. However, better than F if the discount rate is less than the rate at which F and G are equal. This is the IRR we need to know how to find. It is actually 15.6%. But how it was obtained? That is the question.
A financial calculator does not completely help in this case. Since you obviously will not be allowed to use Excel in an exam except a financial calculator, a better way to get it manually is to use the Newton Raphson Method, which solves equations of the form f(x)=0.
This is an iterative method to find a solution to an equation with a degree greater than 1.
The incremental cash flow (G-F) are 0 at t=0, -4200 at t=1, -3200 at t=2, -2200 at t=3, 1800 at t=4, and 1800 for ever.
The Newton Raphson method is given by x(n+1) = x(n) - (f(x)/f'(x)), where n=0,1,...,N, N is the number of iterations, f(x) is the equation that is set equal to 0, and f'(x) is the first derivative of f(x).
In our case,
f(x) = -4200(1+r)^(-1)+-3200(1+r)^(-2)+-2200(1+r)^(-3)+1800/r(1+r)^3
f'(x) = -4200(1+r)^(-2)+6400(1+r)^(-3)+6600(1+r)^(-4)-1800[((1+r)^3+3r(1+r)^2))/(r(1+r)^3)^2
where r = IRR and a simple expression for the term in bold is (-1800/r^2)((1+4r)/(1+r)^4).
Now let start by setting x0=10% and getting the sum of f(x0) and f'(x0), respectively.
Iteration 1
x0=0.1
sum of f(x0) = 5,407.964
sum of f'(x0) = -159,332
x1 = 0.1 - (5407.964/-159332) = 0.133941
error bound 1 (e1)= x1 - x0 = 0.133941 - 0.1 = 0.033941 which is greater than 0.000001 (the tolerance level)
Iteration 2
x1=0.133941
sum of f(x1) = 1515.4
sum of f'(x1) = -81549.9
x2 = 0.133941 - (1515.4/-81549.9) = 0.152525
e2 = 0.152525 - 0.133941 = 0.018583 which is greater than the tolerance level
Iteration 3
x2=0.152525
sum of f(x2) = 218.403
sum of f'(x2) = -59523.1
x3 = 0.156194
e3 = 0.00369 which is  greater than the tolerance level
Iteration 4
x3=0.156194
sum of f(x3) = 6.344567
sum of f'(x3) = -56107.2
x4 = 0.156307
e4 = 0.000113 which is greater than the tolerance level
Iteration 5
x4=0.156307
sum of f(x4) = 0.00573
sum of f'(x4) = -56005.9
x5 = 0.156307
e5 = 0.0000001 which is less than the tolerance level.
As we not getting further the procedure has converged to an IRR that is 15.631%.
I will not ask such a problem in an exam, but my students' self confidence is boosted by getting a sense of how their brains work through the mirror of the Newton Raphson iterative method.

Be blessed!

Who did what?

The Democratic Republic of Congo (DRC) has experienced so far four different presidency regimes. The presidency of Joseph Kasavubu lasted 5 years and accumulated an average foreign aid of $100,560,000 per year. Data on external debt and interest payments are not available from the world bank database for the DRC from 1960 to 1965.
The presidency of Mobutu Sese Seko is the longest so far. It lasted 32 years. Started on Wednesday November 24, 1965 with a military coup, Mobutu's regime ended as it started on Saturday May 17, 1997. The external debt stayed at an average of $6,256,484,259.26 per year. Interest payments to foreign creditors were on average $224,076,451.61 per year. Foreign creditors showed also mercy. They forgave an average of $14,174,814.81 per year of the DRC's debt. The DRC received foreign aid averaging $224,076,451.61 per year. It is difficult to determine the share of foreign aid that was military aid, financial aid, and technical assistance aid. If we have to consider foreign aid as a financial inflow to the DRC, Mobutu has only paid $52,560,193.91 per year.
The presidency of Laurent Desire Kabila started on Saturday May 17, 1997 and ended abruptly on Wednesday January 17, 2001. The foreign debt portfolio was $12,468,428,600.00 on average per year during the LD Kabila's regime. However, since Mobutu left behind a debt averaging $6,256,484,259.26 per year, LD Kabila's contribution to the DRC's external debt is $6,211,944,340.74. For someone who stayed in power for less than 4 years, it is a huge burden he left behind him. It implies that the whole war against Mobutu costed billions of dollars to Congolese. From this perspective, LD Kabila bought his presidency not only with his own life, but also with billions of dollar. LD Kabila was a bad debtor. He only paid $2,199,000.00 in interests and principals. Debt forgiveness during his presidency was on average $11,650,000.00, whereas foreign aid was on average $109,267,500.00 per year.
The current president succeeded his farther. Joseph Kabange Kabila is by far the best president in terms of debt forgiveness, accumulated debt, foreign aid, and interest payments. The average foreign debt is $9,851,324,461.54 per year, but his own contribution to the debt burden is only $2,617,104,138.48 on average. He is the champion of foreign aids. It amounts to $1,870,415,384.62 on average per year. He is a good debtor. He pays on average $197,808,076.92 per year. Joseph Kabila is definitely the president that has brought the foreign debt down. Debt forgiveness is on average $1,286,101,538.46.
These figures show clearly that the worst performer of all the 3 presidents (Kasavubu, excluded) is LD Kabila whose actions impacted negatively on the country. People support or hate individuals instead of policies. A bad policy does not become a good policy simply because a president said so. LD Kabila played a zero-sum game, and lost. Loving your country does not mean ignoring bilateral and multilateral agreements. Loving your country does not mean not paying your debt.
Congolese do not look at facts. If they did they would have been able to support Joseph Kabila in a number of economic and financial issues.
These figures give a clear indication on why the international community has supported Joseph Kabila. Not only he pays his debt, but he also has contributed to the reduction of the country's debt burden. If you want be loved by the international community, you should first pay your debt, and second respect your words. LD Kabila did not. He was killed.

Roads to failures

The Democratic Republic Congo (DRC) is a paradox of modern times. The country was expected to develop at a rate closer to that of Asian tigers. Many countries in the East Asia visited the DRC in the 1960s to take examples of its burgeoning agricultural economy. Many Africans came to Congo either to work or to study. It was a Country of the future. The war of 1960-1965 seems not to destroy the tools of production in many of the provinces of the Congo. Congolese who pursued their studies abroad returned home and they were the first generation of the Congolese elite.
When Mandela was arrested in 1962, he had faith that the DRC will become sooner than later a nation Africans will be proud of. He was obviously disappointed after his release from prison to learn that the DRC has became much poorer than South Africa. He could see by his own eyes that Congolese were many living in South Africa. The richest among them traveled there to cure themselves. Back home hospitals existed, but without skilled medical doctors, drugs, and medical tools, it was not thinkable to visit these houses of desolation.
The university of Kinshasa took its own road. Books were stolen. Resources were transferred from the public institution to private institutions. Students were intellectually and physically abused. Students were arrested for voicing their opinion about the founding president. PhD holders became full professors without showing any publication in peer-reviewed international journals. Those in power hated those exceptional professors preaching ethics, moral, and sciences of thoughts. It was not acceptable to teach students to think critically, to reinvent the Congo. and to transform the present in something brighter. They decided to make prominent professors ministers of toys and pleasures. The house of knowledge became the house of intellectual and physical prostitution.
When you examine the data from the 60s, you reach one conclusion. It was more difficult to get poorer than richer, but we did it all. We became poorer than ever in our history. We already were far behind other advanced nations technologically, but it seems not to bother any one. Since rich we were it was said, we will acquire everything we wanted elsewhere. Obviously, the poverty of mind was eating our brain. Music became an expression of what we want to become. Young Congolese with questionable morality started imposing their view on a generation of Congolese. Singers of questionable quality insulted Congolese from the country side. They presented Kinshasa as the place to be. The message was clear. Let us enjoy life. Only pleasure matters here in Kinshasa.
The government on its side was composed, decomposed, mystified, and nullified. The country adopted a new name without changing the president. With hindsight, Mobutu must have lost his mind. He did not hesitate to invade people's privacy. He was the owner of every thing. He stole foreigners' assets. People working for him developed policies to steal, to take control, and to be exempted from any future accountability. Data were not produced. State documents were intentionally destroyed. Statistics were the enemy to keep afar. Mobutu and his friends were fighting the state. Not longer enough, they decide to be the state themselves. Mobutu became godfather. Mobutu was not a mathematician, but he did invent one equality: "One Farther = One Chief = One Country".

Estimating standard errors in Excel

I will estimate the following model
Y(t) = a + bX(t) + e(t)
Y(t) is the GDP per Capita growth in the Democratic Republic of Congo (DRC).
X(t) is the change in the price of copper.
t indexes years.
the sample period is from 1995 to 2013.
e(t) is an error term.
a and b are unknown coefficients.
The null hypothesis is that change in the price of copper is not significantly related to the DRC's growth, even though copper is an abundant resource in the DRC that for long has greatly contributed to the state budget.

Copper price returns (X) = [-24.62%, -0.79%, -31.95%, -5.03%, 14.23%, -13.89%, -1.20%, 13.18%, 47.67%, 24.97%, 60.28%, 5.73%, -2.31%, -30.06%, 38.06%, 15.84%, -10.32%, -8.25%]

ones = [1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1, 1]'

growth (Y) = [-7.41%, -8.00%, 0.00%, -8.70%, 24.12%, 0.00%, 35.67%, -16.25%, 11.12%, 10.01%, 9.10%, 12.26%, 10.92%, 3.39%, 6.45%, 3.08%, 11.44%, 7.80%]'

You can run a simple regression under Data, Data Analysis, and regression. What follows here is more a curiosity than a real challenge to estimate the unknown coefficients. However, you are losing nothing knowing what the program does by following its steps.

We know from the introductory course in statistics that the unknown coefficients are stack into a vector of coefficients, beta, which is here

beta = [a, b]'

beta = (X'X)^(-1)X'Y

X is a matrix including all the explanatory variables. Our explanatory variables are X(t) and ones with n by 2 dimension (nx2), which means that (X'X) gives a 2x2 matrix. In excel, select a 2 by 2 area and write in the first cell of the selected area the following

m1 = minverse(mmult(transpose(range of Xs),range of Xs)), and take ctrl+shift+enter

The dimension of X'Y is pxn nx1, giving px1, where p is the number of coefficients. Select two cells in a column, then write

m2 = mmult(transpose(range of Xs),range of Y), and take ctrl+shift+enter

The dimension of (X'X^(-1)X'Y is px1. Therefore select two cells in a column and write in the first cell of the selected area

m3 = mmult(transpose(m1,m2), and take ctrl+shift+enter

If you used the data above, a=0.052971 and b=0.105249.

It seems to exist a positive relationship between change in gdp and change in copper price. To make sure that such relationship is statistically significant we need to estimate the standard error of the estimates.

We first have to estimate the residual standard deviation. The dimension of the error is nx1, which suggests we have to select a range of the same dimension as our data. In the first cell of the select range write the following:

e = (range of y) - mmult(range of Xs,beta), and take ctrl+shift+enter
We also estimate the dependent variable residuals as y - average of y next to the column of e as
w = (range of y) - average(range of y), and take ctrl+shift+enter
We will compute both the sum of residual squares (ssr) and the total sum of squares (sst).
In a cell write to obtain

ssr = mmult(transpose(range of e),range of e)), and take ctrl+shift+enter => 0.24077
In another cell write to obtain
sst = mmult(transpose(range of w),range of w)), and take ctrl+shift+enter => 0.253078
We compute the residual variance as the ratio of ssr to n-p, where n is the number of observations.
In a cell write to obtain
n = count(range of ones) => 18
In another cell write to obtain

var = (ssr/(n-2))
In another cell write to obtain
sigma = var^0.5 = 0.122673
We compute the r-square as 1 minus the ratio of ssr to sst.
In a cell write to obtain
rsq = 1-(ssr/sst) = 0.048605
We compute the adjusted r-square as 1 - ((n-1)/(n-p))(1-rsq). In a cell write to obtain
arsq = 1 - ((n-1)/(n-2))*(1-rsq) = -0.01086

The standard error of a and b are sigma times their corresponding values in m1. The diagonal values in m1 are positive. use = to arrange the two values in a column. So, this is the diag vector. Select two cells in the column next to the estimated coefficients and write in the first cell of the selected range

s.e. = sqrt(mmult(range of diag), var), and take ctrl+shift+enter

The s.e. of a and b are 0.029514 and 0.116412, respectively. So, the t-stat for a and b are 1.8 and 0.9, respectively; far below 1.95.

We conclude that change in price of copper does not significantly impact the gdp growth of the DRC. We need may be to extend our model by including other variables and more data points. However, we have shown that we can estimate the unknown coefficients and their standard errors in MS Excel using the matrix language.

A simple active portfolio

The Treynor and Black (1973) model offers a simple procedure to add a stock with a significant alpha to the passive market portfolio. The main ingredients of the model are the stock alpha (abnormal return), the stock beta, and the stock residual variance. Additional statistics are the market risk premium, and the market variance.
The case where there is only one stock, it is easy since it requires only few steps.
Suppose you have estimated a simple index model, where you regressed a stock excess return on a constant and the market excess return. Suppose both the constant and the beta are significant coefficients. Your alpha = 1.75%, beta = 1.75, residual standard deviation is 30%, the market standard deviation is 25%, the risk-free rate (rf) is 3%, and the market return (rm) is 14%.
The first step is to compute the ratio of alpha to the stock variance. This ratio is the base of the model, and it is referred to as the information variance ratio (IR).
IR = alpha/residual variance = 1.75%/30%^2  = 0.1944
The second step is to compute the ratio of the market risk premium (MRP) to the market variance, which is referred to as the market price of risk (MPR)
MRP = rm - rf = 14% - 3% = 11%
MPR = MRP/market variance = 11%/25%^2 = 1.76
The third step is to compute the ratio of IR to mpr (W0), which gives the risk-unadjusted investment proportion in the stock.
W0 = IR/MPR = 0.1944/1.76 = 0.11048
The fourth step is to adjust W0 for the beta risk. This is the case when beta is different from 1.
W1 = W0/(1+W0(1-beta)) = 0.11048/(1+0.11048(1-1.75)) = 0.12046.
W2 = 1 - W1 = 1 - 0.12046 = 0.87954
W1 is the investment proportion in the stock, whereas W2 is the investment proportion in the passive market portfolio.
The last step to obtain the performance of the active portfolio (AP) is simplified, where the optimal investment proportions do not appear.
AP = (SM^2 + alpha^2/residual variance)^0.5, where SM is the market Sharpe ratio
SM = 11%/25% = 0.44
AP = (0.44^2 + 1.75^2/30%^2)^0.5 = 0.44385
An improvement of 0.0583 over the passive market portfolio
***
The same steps apply when dealing with a number of stocks with significant alphas. Suppose the following:
alpha = [0.001, 0.0005, 0.021, 0.00135]', where alpha is a transposed row vector
sigma = [0.15, 0.08, 0.3, 0.18]', where sigma is a transposed row of standard deviations
ones = [1, 1, 1, 1]', where ones is a transposed row of ones
beta = [1.7, 1.1, 1.95,0.95]', where beta is a transposed row of betas
rho = [0.2, 0.35, 0.7, 0.8, -0.35]', where rho gives the correlation for r12, r13, r14, r23, and r34.
To obtain W1 for each of the stock, we use Excel. Let me give the formula in two parts. Start by making a 4 by 4 variance covariance matrix (VCM), and write in the cell the following
a = minverse(mmult(mmult(transpose(alpha),inverse(VCM)),ones), and take ctrl+shift+enter
a is a scalar. For b select 4 cells in a column and write in the first of the selected cells
b = mmult(inverse(VCM),alpha), and take ctrl+shift+enter
c = mmult(a,b), and take+shift+enter giving W*
bp = mmult(transpose(W*),beta), and take ctrl+shift+enter, where bp is the beta portfolio
ap = mmult(transpose(W*),alpha), and take ctrl+shift+enter, where ap is the alpha portfolio
vp = mmult(mmult(transpose(W*),VCM),W*), where vp is the portfolio variance
W0* = (ap/vp)/MPR = 0.2423
W1* = W0*/(1+W0*(1-bp)) = 0.2367
W2* = 1 - W1* = 0.7633
AP* = (SM^2 + ap^2/vp)^0.5 = 0.447903
An improvement of  0.0838 over the passive market portfolio
***

Fear

Fear is a silent prayer. It sits deep inside. It guides thoughts. It is a power of some sort. I see it as a secret agent without announcing himself. An invisible agent, powerful, not refusing a pleasure to enter your dream.
Fear does not need an instructor. They say we are born with a fear to be abandoned and a fear to fall.
Fear shows the limit of life. A territory where life will be impossible to continue, not as I have it, but as I share it with others. Life does not exist in one individual, it only exists in us as a group of human beings.
 Don't be afraid, Jesus Christ said. Those are one of the words he pronounced not longer before himself needed to fight his own fear. Those are also one of the words for which we continue searching for the "true" meaning.
When does somebody tell you not to be afraid? When the hurdle is higher than normal. Does saying 'don't be afraid' make us not to be afraid? It is a spiritual communication. It is not the physical challenge we fear. We fear the idea of taking the challenge.
Ideas make us, make the world. Because ideas guide our future, controlling these ideas is the only policy of domination. Once all the channels are closed, we become prisoners. We are not free any longer to think by ourselves. It is as we cannot live without the freedom to use the alphabet in the way we want. It is as we cannot live without the freedom to use symbols and figures to express ourselves.
We don't fear to die. We want to walk to our death free. 

What about us?

The game of life you have both to play it and to watch it. If you only try either to play it or to watch it, you lose it. Of course, it is about being specialized to be able to play at least one game of interest. It is a fact of life that people are happier when they both play and watch. It is as to say you have to give and to receive. It is as to say you have to produce what is consumed, and to consume what is produced. Between playing and watching, giving and receiving, and producing and consuming, there should be a medium of exchange.
Countries differ in terms of the number of games, players, and spectators. More games is synonym of more production, consumption, and exchange opportunities. More players is synonym of more production tools. More spectators is synonym of more consumers.
We are survivors because we like to play games. We have invented many games since we are around. We made some games longer, other shorter.
At one point, we decided to invent a game where our meat is grilled. We could have continued eating raw meat. But grilling it made the game longer, more interesting, and eventually healthier. Surely, in the beginning someone did not want to grill his share of meat. It was for him time consuming.
However, such a game suggests that we invented a way to grill. It needed a new technology. It also needed calibration, a transformation process to make it not only better, but optimal.
I am sure not everyone did the right thing at the same time. Doubt is something that has saved human being from insanity. Without doubting, we would have killed ourselves because a god wanted so. But as we doubted, we saved ourselves from trouble.
May be only one person was convinced by the transformation process. The majority eat their raw meat, and went to hunt again. Some did not come back, attacked by a ferocious animal, or by another tribe nearby. The one who stayed behind grilling his meat waited them, they came back exhausted while he was contemplating the stars. They tried to explain, but they were too tired. They went to bed. Soon they forgot themselves in irrational dreams. Many days after, the stubborn but survivors realized that sitting around a fire was a more interesting game than hunting in the middle of night. The fire lured them. It was enjoyable to be around and to let something else take over. They could see each other in the eyes, make remarks. They played together. Soon it became a special moment to talk about something from the inside. They played more and more.
While sitting someone told someone else that it would be interesting to fool people living in the next village. They went there pretending something. They found them fighting each other. The game for them was interesting. But as they approached, the smell of a grilled meat reached them. They wanted to ask what it was. They told them that the grilled meat was a new game they have discovered. It is from an area where grilled meats drop from the sky. Those who heard asked more. They wanted to know the route there. They went, they never came back. Those behind laughed. They took their wives, they made their sons slaves, they were the masters.
All kind of stories could be told to an ignorant person who did not assist to the transformation process, who did not see that it was a raw meat, there was a fire, there was people around waiting, there was a moment where they all were puzzled by the transformation. They could have said to those absent that the grilled meat was the same meat but transformed. A simple industry with a simple technology separated people from the same environment.
In countries, where different games are organized to increase the chance for every one to play at least a game that can be watched by someone else, people tend to produce more independently of the political system ruling them. In countries where games are few, people produce less, poverty tends to be the share of those who watch, and wealth the share of those who play.
All societies are inherently unequal. Different beliefs lead to different choices.

What's next?

Players take actions anticipating their future moves. Where is the point to make a move if it does not take you further? What is the point to make a move when you lost already?
Future moves include as well your opponent moves. In economics, players reach a Nash-equilibrium when they can clearly identify the best response of each players in the game. A poor strategist will ignore the best moves of his opponent by attempting a blockage of some sort. Such a strategy works when the blockage is not anticipated by the opponents. Every player must be aware of the possible actions combined with different strategies. Every player must anticipate the outcomes of these actions. You are a poor opposition leader if you don't consider the best response of the ruling president. I cannot help it, but to take note of how poor politicians in the Democratic Republic of Congo (DRC) tend to be every time they play.
These politicians are doomed to fail as they are overconfident. In 2006, the country adopted a new constitution imposing the presidential terms to 2 of 5 years long. The acting president of that time sign in law the constitution and made it public. The acting president became president Joseph Kabila, and went out in public to declare his faith in the new constitution.
I did read the constitution and found good and bad things in it. Among the good things, it expressively exhorted the citizens of the DRC to resist against any attempt for a dictatorship move. There are few constitutions in the world that give its people a licence to resist. Another good thing is that it is impossible to modify the constitution regarding the institutional form of the state, and the presidential terms. Among the bad things was the denial of citizenship to Congolese who adopted another citizenship.
Nine years later, the president and his team are showing all the signs of players who want to cheat. Their argument is that the constitution is not longer adapted to the current situation of the country. Clearly, the argument is that at the time the constitution was sign in law, the country was facing rebellious movements. What they really mean is that their hand was forced to sign whatever they want to change today. Such an argument is flawed, and intellectually dishonest. It is in contradiction with the notion that the DRC is an independent state. Once the president signs a text in law, blames should not be on the process. Another serious contradiction is that the acting president became the president, which implies that he agreed on the terms of the constitution. Denying the terms of the constitution that made him president means that he must have resigned as a president. He cannot possible deny the source of his power when still president.
Of course the president and his team can play another card. They can ignore the constitution to force a new republic or monarchy or whatever suitable for them to remain in power as long as the cost is lower than the gain. It means that they should not change the constitution, they should kill it. The trouble is that if killed, the citizens have the legal authority to resuscitate it. The constitution gives them the licence to resist any one who kills the constitution.
The current tension in the country reflects the move of the ruling president. I don't know what is the outcome of such a move. One thing for sure, this move was anticipated by the members of the opposition. Worse the move is anticipated by the international community. It remains to see if the move will not lead the current president to a bloody end.

Corniche Beirut

I woke up today and took a walk toward downtown Beirut. Today is off in Lebanon. Another Easter to celebrate. The orthodox (Eastern) Easter that comes one week later. Is not amazing to work in a country with so many religions, each with its particular celebration dates? Talking about tolerance, coexistence, and trade-offs, Lebanon has a number of lessons to give to the rest of the world in this respect. Not because I enjoyed these off-days, but simply because every one celebrates every one's else day. In Lebanon, you are lost between those who could be seen as Christians and those who could be seen as Muslims. Every one is equally happy to wish you good health and prosperity on your celebration days. Lebanese disagree on a number of political issues, but when it comes to tolerate each one's beliefs, there are not many countries I can compare Lebanon with.
Today it was not the best weather for a walk on the Corniche, but I could not resist the call of the Mediterranean sea, dressed with a black coat of bad days. If you think about large, voluble, and profound object on the earth, the sea is such an object. It is not the greatest, but it gives you an idea of what is big but flexible; what is beautiful but dangerous; and what is profound but specially polluted by human activities. From my apartment I have a partial view of the Pigeon Rocks, the symbol of Beirut. From my window, on sunny days, I can enjoy the view of the sea dazzling, waves dancing in the air, the sun coloring the space, and the blue merging with waves.
I have been a while in Beirut, Corniche longing the seaside and Charles De Gaulle avenue, is the promenade with most of my footprints. Corniche is a long promenade of 4.8 kilometers, and has never been beautiful since its trajectory has been prolonged toward the sea at the Zaitouna Bay.
I would start my walk from KFC and turn North. The first corner is an amazing spot as it reveals the south part of Beirut. You can see, if lucky, an aircraft about to land. You have a clear view of the Pigeon Rock. I usually spend 2 - 3 minutes here. I will then continue my walk down to the military beach. The promenade gets larger from the Riyadi sport centers on the other side of Chales De Gaulle Avenue.
From the first end of the military compound to the lighthouse, the promenade is not as crowded with people as at the corner nearby the lighthouse. There is a restaurant just about the seaside.
From the lighthouse, the promenade is open to the sea and the mountains. From here you start sensing why there are so many people visiting the promenade Corniche every day. There is a great sense of freedom at the Corniche where all kinds of activities take place. People run, walk, stand by, take selfie, and ride. Every one enjoys a superb view of the blue-sky melting into the sea.
Corniche reveals also a city full of contrast. On one side the sea inviting every one to enjoy and to share, on another side skyscrapers distinguishing the very few. Strange enough these apartments with a breathtaking sea view are rarely occupied. You don't see people sitting on the large balconies. Maybe they lock themselves behind tinted glasses. But I really wonder why pay so much for so little use. There must be a rational explanation.
Corniche is not equally occupied. There are spots where you see people standing, sitting or taking their breaths, but there are spots where every one is in move. Joggers are better off running from the first end of the military compound to AUB. Beyond packs of people move slowly.

Nested "IF" statements under MS Excel

I was trying the other day to use conditional statements in Excel, but was getting an error message. I did not want write a VBA-code for a simple task.
I wanted to calculate the score of Exam 2 for a student who had perfect attendance, a score of 90 or above in homework assignments, and a score of 90 or above in Exam 1. My policy this semester is that such a student can skip exam 2.

How I solved the problem?

First, I wrote one single IF statement for condition 1, which is the score in exam 1 as follows,

=IF(D3>=90,D3,($E$54-25)*$E$55),

where D3 is the cell where the score of exam 1 is for student i, and the expression ($E$54-25)*$E$55 is an expression to calculate the score for an exam with 25 questions. I will note this expression as C.
Let me denote the first IF statement as X1.

Second, I added a second IF statement to X1 conditional on class attendance as follows,

=IF(Attendance!E2="YES",X1,C),

where Attendance! is the name of a sheet. Let me denote the second IF statement as X2.

Third, I added a third IF statement to X2 conditional on the assignment score as follows,

=IF(Assigment!C2>=90,X2,C).

In this way "IF" statements can be nested almost endlessly.
The key in nesting IF is to make sure that the structure of an IF statement is respected,

=IF(condition,command,clearance)

=IF(A>B,A,B), 

which means if A is greater than B, then A, else B.

In my ancestors' footprints

Why nations fail by James Robinson and Daron Acemoglu is a book I enjoyed reading. The book does not save on examples that speak to Africans. It digs into the unknown history of the Democratic Republic of Congo to show the roads we took to fail.
I understood by reading the book that failure is not a random event, it is an outcome of our attitude toward newness, risk, and the unknown. Curiosity engages your spirit, and dissociates yourself from your own world. Moreover, I understood that our failure cannot be separated from our ancestors' system of thoughts.
In Africa, ancestors are regarded with a great esteem. They are in the imaginary of Africans part of their societies. I still have a little understand of the role my ancestors played in the making up of Africa. When I look back in history, it is difficult to understand why we give them so much place in our life when they did not prepare the future we are in. May be I am not humble, but I do not see many signs from the past to invite them. Their failure is not as much in the lack of technological initiative, but in giving themselves into others' ideas.
There are people who believe strongly in the ancestors as physical entities. They feed them. They call on them. In the Nether Congo, where I am from we are not really into ancestors' business. We are much westernized in our beliefs.  Every thing is about representation. Surely, the weakness of our African beliefs is the lack of codification. Every one has his/her own ancestor, own god, and own way to relate to the future.
The way we believe in a large part of Africa runs against the common belief that Africans come from like-minded communities. Nothing is more false than the idea that Africans drink from the same stream of beliefs. We share material things, but not spiritual things. May be we share the same fear, but fear does not proceed from knowledge, it proceeds from ignorance of one's environment.
In places where beliefs were codified in few schools of thoughts, it helped to unite a large group of people. Sharing into the same beliefs give power, confidence, and trust. Africans are individuals united in their souls, but not in their brains.

The 425 indigents of the DRC

What was revealed in Kinshasa in the Democratic Republic of Congo (DRC) on April 3, 2015 is shocking, and astonishing. 425 persons were buried in one big hole like dogs. Nobody really knows of what they die. Some are speculating that they are the victims of the three famous days of January 19, 20 and 21, 2015. I stick to what was said.
What do we know about the 425 bodies? We know that they did not pay for their hospitalization. We also know that the 425 lived and died indigents. We do not have their names. They are unknown. We could call them the unknown 425 Congolese. Why they buried them all in one big hole? Why the authority decided to bury the 425 altogether?
No place was found for the 425 indigents. Only one big hole, near Kinshasa. I don't know if a priest was invited to say few words for the 425 indigents. Obviously, not. The 425 indigents really got during their life time an unmerciful foe. He pursued them in their dreams of death. He denied the least he would not refuse to his/her worst enemy. What the 425 indigents did to the Congo to earn such a treatment? What or who the 425 indigents displeased so much?
The interior minister said their foe was poverty. They were so poor the government could not give them a proper burial. If poverty was the enemy of the 425 peoples, nothing good is to be expected for the rest of the population. Congolese must start saving for the funeral expenses. Through the 425 bodies, they government is sending a clear message. Pay your bills. If you don't, the government will bury you, yes, but as a community of indigents. Pay your hospitalization expenses, otherwise you will be buried like a dog, if you are lucky.
Someone may think that the interior minister, Boshab, is not of Congolese origin. He is 100% Congolese. The man is a professor of law at the University of Kinshasa. He represents by himself the intellectual caution of the Kabila's regime. So, we are talking about somebody who has a good command of the french language. He came out and called the 425 Congolese indigents. What else they were, if not indigents?
What is amazing in this story is the treatment given to human body. Here, we are not talking about Boko Haram or Al-Shabab, we are talking about the government of the DRC. Yes, the 425 may have been poor. But they were so poor that they did not have a family, or a friend who cares? Those questions I will keep asking myself until the day another story will be told.

I am a Garissa Student

I am saddened by the killing of students at the Garissa University in Kenya. Last months, France and Denmark had their shares. When it happened in France, the news was in the air as if the entire world was shaking. Heads of states from different countries came to France to share the sorrow of the French people. Even Barak Obama was thought to make the trip to France. We saw how the leaders of Europe walked hand in hand. Charlie Hebdo insulted the prophet. The 147 students in Garissa never made such a statement. They never went out insult any religion. Still they were targeted, and dealt in the same way as journalists at Charlie Hebdo. The 147 students were no Jews. Regardless, there were killed as Jews in Paris. What did the 147 students to deserve a death penalty? Did they write essays condemning al-Shabaab?
The images in France and Denmark were amazing. I could not help it. I felt like as I was part of that society. Even though I am not living in France, the emotion came all the way to me. I was almost feeling as being Charlie. Now there are 147 students killed in Kenya. Three days of mourning in Kenya. But what is the response of the world? We cannot compare. It is day and night. Africans felt Charlie, but as for Garissa, they don't feel a thing.
The emotion for the 147 is minimal. You cannot compare with the emotion orchestrated for the 19 in France. I will not ask for the international community to mourn for our 147 young students. They have been many tragedies in different parts of the world claiming more life. But it is important as an African to get a good perspective of values, and emotions the Westerns talk about.
147 young students killed, not because they were black, but because those who killed them thought that they were not thinking like them. They were a danger for their virtual society. The sentence of death was taken to show power, the capacity to harm. Of course, as African themselves, easy targets were chosen. Unarmed people holding in their hands at best a pen and a notebook. The murderers knew that they will be victorious. Terrorists had guns in their hands, our 147 students had books. Books against Guns, where is the so much power of the god they kill for.
147 young persons, the future of Kenya, and the hope of Africa assassinated for no good reasons by ordinary people with an agenda written by others.
Kenya is a melting pot of people from different parts of Africa.
I visited Kenya in 2000, loved Nairobi, and promised myself to go back there. Bad news does come from Kenya, but most of time you hear good things about Kenya. You hear these things from foreigners who had a chance to visit the country. From the airport to downtown you come to appreciate Kenyans. They have really learned how to accommodate a foreign visitor. You can take a taxi from the airport and reach your hotel without much wondering. This is a touristic place. Kenya is a country Africa can be proud of.
I don't know why Kenya is a target of terrorist groups. Is it because the country open itself to different religious cultures? It is difficult to answer the why question. Only those who committed such a massacre know the answer to our questions.
We cannot rationalize the killings of 147 students. These murderers want take Kenya back to the time of obscurantism. The same philosophy as Boko Haram in Nigeria, they do not want the young African to be free in his/her mind. They don't want Kenyans making their ways to a better understanding of their neighbors. For them I guess their neighbor must be a god.
Now it is pointless to try talk reason to theses guys. Their representation of the world is completely at the opposite of the common reason. They want Kenyans to point finger. But I hope Kenyans should continue to speak the language of brotherhood.
I also pray that my brothers and sisters in pain will find peace in Jesus Christ in their own ways and times. May God show mercy on all of us.

End roads

In 2016, there will be a presidential election in the U.S., but also in the democratic Republic of Congo (DRC). Very strange that the two countries are changing their president about the same time. In the U.S., there is no question, the president Barack Obama will step down at the eve of 2017. In the DRC, it is still debatable if president Joseph Kabila will accept to do something else for the five coming years and attempt a comeback in 2021. He will only be 50 years old in 2021. But 5 years in the opposition can be hard when JOKA has been president at age 29 years old.
Stepping down as a president is difficult. It will be difficult for even Barack Obama. If it was difficult for presidents whose actions are politically, legally, and administratively guided, what about a too powerful president?
I have read these days people around Joseph Kabila initiating new questions. I am surprised that wrong questions have been asked. It is no longer about how good or poor he is as a president. The question is not who likes him or not. That is not the question. The question is what the constitution says?
Instead of helping the guy to see how he can save himself from trouble, his advisers are not helping him see the next step. The same people were there when the constitution was written. The same president did sign it. Why they did not think clearly then? Poor advisers.
What is more damaging forcing the president to commit political suicide or preparing someone of his party capable to win and to save him from future troubles? Time has been wasted in stating the obvious. He will not be president after 2016 as he is now.

les limites économiques

L’économie que j'enseigne a l’université n'est qu'une science humaine. Elle n'y a aucun principe de divinité qui la pousserait vers les firmaments des cieux. C'est une science qui s'adapte aux humains. Elle est opportuniste. Elle utilise tout ce qu'elle trouve sur son chemin pour apparaitre. Elle a le don d'imitation prodigieuse. Elle vous met du physique quantique pour analyser des données financières. Elle vous donne une proposition sur base des processus stochastiques qui n'ont aucune existence à la hauteur de leurs belles espérances. Elle fait tout pour vous compliquer la tache de comprendre qu'elle vous pousse à posséder. Elle est implacable dans ses entêtements théoriques. Vautrées dans des habits faits pour d'autres plus grands et plus durs, les sciences économiques ne cherchent pas a découvrir une autre planète. Elle est trop bien chez elle sur la terre pour tenter une escapade astronomique vers des milliards d’étoiles apparemment sans propriétaire. Le jour elle ira là-bas, ça sera la fin du monde de la contemplation gratuite. Les propriétaires vous diront où pointer votre télescope. Nos bonnes théories parleront du bien que les taxes font pour ne pas trop regarder le soleil brûlant. Ça sera tellement vrai que nous payerons sans se rendre compte qu'on est entré dans l'ère du vide marchandé. Le marché des astres aura alors poussé la croissance économique aux portes des dividendes. Déjà des industries commencent à poindre le bout de leur nez car il faut aller là-bas pour rejoindre les promesses du lointain charmant. 

Je me trompe souvent. Je ne verrai pas ce jour où les marchés s'empareront des astres lointains. Je serais devenu poussières astrales et vagabondes autours de quelques astres inconnus. Alors pendant que je suis encore là. Laissez-moi douter. 
Je doute for que les sciences économiques deviennent une science universelle, capable d'expliquer les lois de production, de distribution, et d’échange partout et en tout. 

L'homme peut s'hasarder et utiliser sa propre rhétorique pour, par exemple, calquer ses principes économiques sur ceux du règne animal et végétal. Mais il est à parier que beaucoup des principes économiques seront incapables d'expliquer le choix de vie ou de mort chez des êtres dont les motifs spirituels sont totalement inconnus aux humains, piégés par un sens raffiné du haut et du bas, du plus et du moins, du début et de la fin, et du plein et du vide. 

On peut effectivement penser que tous les êtres sont égoïstement marathoniens du gain, du toujours plus, et du dégoût qui vient avec le gout. Comme ils vivent comme nous, nous devons partager un même dénominateur commun. Après tout, ils doivent cheminer sur les mêmes chemins du désir de se multiplier, se photographier, se cloner, et laisser derrière soi, soi-même. 

C'est déprimant de penser que mêmes les êtres si petits que le bout de mes cheveux soient à ce point friand du gain. Derrière, il y a l’idée, que rien ne tient debout sur cette terre. Il n'y a aucun être dans cette jungle naissant avec des vertus du refus, d'abandon, de perte, de disparition volontaire et immédiate. Pire il n'y a aucun qui se nourrisse pour consciemment s’offrir en nourriture. Il y a de victimes, mais victimes d'inconscience. Elles ne luttent pas pour perdre. Je parle des vrais volontaires sans leur volonté égoïste. Celui sur qui l'hasard n'imprime pas sa volonté. Il va échouer dans les mains de son bourreau qui lui même marchera calmement vers sa fin heureuse. Il est évident que j'ai besoin de mes principes économiques pour mettre de l'ordre dans mes pensées.  

Comme attaché a l'instant zéro, j'entrevois des liens indéfectibles entres les choses, les éléments, et les êtres. Seulement, je doute que mes principes économiques puissent régenter cet univers bien contradictoire dans ses rotations et révolutions. Les principes économiques ne peuvent aller jusqu'au plus profond de l'univers et expliquer les luttes bestiales qui s'y déroulent. 

Que les sciences économiques fassent du beau et du mauvais temps sur la terre des hommes, il n'est pas souhaitable que ces sciences aillent dire aux insectes comment ils doivent se comporter pour produire plus, gagner plus, et sauvegarder plus. 

Un Adam Smith chez les insectes fera un tabac. Et viendra de génération d'insectes dites intelligentes qui découvrira comme les John von Neumann and Oskar Morgenstern les bases de la théorie de jeux. Un peu d'intelligence ici et là ne peut faire que plus du mal. Tout doit être possédé chez les humains. Il y a comme une éternité dans des choses qu'on a accumulé. 

Peut être que le monde d'ailleurs obéit aux mêmes lois universelles que nous, mais certainement les principes économiques ne sont pas assez vertigineux pour expliquer le silence assourdissant du monde animal et végétal fasse au bruit de nos machines à pousser la planète vers son néant.

Inflation and NPV

An important aspect of project valuation is the discounting of future cash flows using an appropriate opportunity cost of capital.
When cash flows and the opportunity cost of capital are given, obtaining the net present value is straightforward using either a financial calculator or a spreadsheet.
However, under inflationary economy, good care must be given to both cash flows and the opportunity cost of capital to obtain the same net present value in either nominal or real terms.
Only today I realize why my students were finding it difficult to deal with inflation in discounting real cash flows. The exercise involving a constant inflation rate was well understood, but I got only 1 right over 42 students on the exercise involving varying inflation rates.
I thought it may be good to demonstrate for the unknown student how to deal with the term structure of inflation rates. But as for every thing else in life, let start with the easiest case and end with the most involved case.
Suppose the following:
Investment (I(t=0)) = $800, real cash flow at time 1 (RCF(t=1)) = $500, RCF(t=2) = $700, and RCF(t=3) = $800. Assume an opportunity cost of capital of 25%.

What is the net present value in nominal terms when the expected inflation rate is 10% and constant over the three years?

Step 1: Convert real cash flows into nominal cash flows using
RCF(t)(1+i(t))^t,
where i(t) is the expected inflation rate at time t.
Step 2: Discount nominal cash flows using the nominal discount rate (the opportunity cost of capital).

Applying the two steps at once we obtain:

NPV = -$800 + $500(1+0.1)/(1+0.25)  + $700(1+0.1)^2/(1+0.25)^2 + $800(1+0.1)^3/(1+0.25)^3 = $727.26

What is the net present value in real terms?

Step 1: Adjust the nominal opportunity cost of capital for inflation rate by using
r(t) = [(1 + R(t))/(1 + i(t))] - 1,
where r(t) is the real rate at t, R(t) is the nominal rate at t, and i(t) is the expected inflation rate at t.

Doing so, we obtain, [(1+0.25)/(1+0.1)] - 1 = 0.1364 or 13.64%, which is constant over t.
Step 2: Discount real cash flows in terms of real opportunity cost of capital
-$800 + $500/1.1364 + $700/1.1364^2 + $800/1.1364^3 = $727.26

Conclusion: We obtain the same NPV in both nominal and real terms.

The following part is the more involved, and you will see why.

What if inflation rate is not constant over the years? How can we be consistent?
Let now assume that the expected inflation rate is 10%, 12%, and 15% at time 1, 2, and 3, respectively. We keep the rest of the given unchanged.

In nominal terms, we get:
-$800 + $500*1.1/1.25 + $700*1.1*1.12/1.25^2 + $800*1.1*1.12*1.15/1.25^3 = $772.26
So the formula is: RCF(t)(1+i(1))*(1+i(2))*...*(1+i(n)/(1+R)^t)

In real terms
step 1: Get the nominal rates at each t using R(t)(1+i(t))^t
step 2: Adjust R(t) for inflation using r(t) = [R(t)/((1+i(1))*(1+i(2))*...*(1+i(n)))^(1/n)]-1
So, in our cases
r(1) = [(1+0.25)/(1+0.1)] - 1 = 0.1364 or 13.64% as before
r(2) = [1.25^2/(1.1*1.12)^(1/2)] - 1 = 0.1262 or 12.62%
r(3) = [1.25^3/(1.1*1.12*1.15)^(1/3)] -1 = 0.1130 or 11.30%

We now use these real discount rates to discount our real cash flows to obtain the following:
-$800+$500/1.136 + $700/1.1262^2 + $800/1.1130^3 = $772.26

Conclusion: We are consistent. Both methods agree.

I hope this helps.

Extreme life style

Boko Haram is not a disease. It is a rebellious movement whose methods combine traditional military combats, suicide attacks, forced labor, and civilian subordination. Peoples of different backgrounds are today members of Boko Haram, a baby whose face concentrates the misery of Africa. Those in Boko Haram could be any African who at one time or another thought enough is enough.
I have seen people all over the continent searching for new ways to make a living for themselves and their loved ones. These ways are often extreme. All extreme ways are not alike. Boko Haram is an extreme way to make a living at other peoples' cost. Crossing the Mediterranean sea is another extreme way to make a living at oneself's cost. Serving as housemaid in the Middle East is yet another extreme way at oneself's cost to make a living. Many other extreme ways are hidden in every one of us. We have left behind us without always valid reasons aging parents, vulnerable brothers and sisters, and fragile societies. We have traveled miles for almost no impact. We are not as Europeans conquering America. We did not conquer a thing.
But who to blame for our misery, our quest for extreme to make a living of very little impact on ourselves and our community? Shall we blame our governments? Shall we blame Westerns? Since we are part of these constituted groups, it will be a shame to exclude ourselves for common failures.
Our education has one purpose: "live by standards." A life at extremes is not a standard life. Being part of Boko Haram is not a standard. Crossing the Mediterranean sea is not a standard. Travelling all the way from Ethiopia to Lebanon to work in-house is not a standard.
Extreme events will never be normal events. They are risky events with very little probability mass of occurrence. There will always be the lucky event among many events. It is the law of probability. The point to be made is that extremes are very costly for our continent. Losses through extremism are by far higher than gains. Extremism is about a person, standard is about common good. We must learn to live by standards.

Last but not least

Why we have failed as Africans of all walks of life? Because we are stubborn peoples scattered across the African continent.
We are not worse than others. May be we are the last if continent must be ordered in terms of its success to solve human problems. But being the last among the best is not always a bad outcome. There must always be a first and a last thing. If I am not, someone else is. When you consider a group of people, the notion of last is meaningless. Last makes only sense if you have a linear view of things or peoples. A nonlinear view eliminates the last effect. It much depends from which perspective you look at things. A last thing for one may be a first thing for another person. May be this is why people travel around the globe to discover the last they do not know. They pay to visit the last thing, the last civilization, the last beast, the last of the last.
The last thing is mysterious to me. Once the last thing is known, it becomes a thing among other things. A profound sense of search makes the last thing, a think to add to other things. No human will try to destroy the last thing. No human will aim to eliminate the last people. If such a mistake is intentionally done, then the next to last become the last. May be some of the brilliant minds who know who is intellectually last are afraid to walk a mile and discover the truth of the last. Obviously, they must be the last.
So being last is not all bad. In many situations to be last is to be first. Consider the European struggle in experimenting different economic, political and technological systems. Consider now African countries we gained their political independence in the 60s. Normally, those who were last should have been the first to improve the old systems. Unfortunately, the last went further back. They got their inspiration from Machiavelli. Some went even further to resuscitate Cesar and the Pharaohs. Obviously the last was still the least. Considering that a human is a completion of another human being, it is a conundrum that dictators were born to Africans.
I asked myself why we did not learn from others. Our fathers thought they were different from others. In their misery, they run away from the past of those we came to colonize their minds, to tame their spirit, and to brutalize their body. They were much afraid to be like them. But were they better? If they were better in which ways? We have to go back in history to find out what kinds of people our African ancestors were before the arrival of colonizers. Did not they brutalize their fellows?
We are now in the 21st century. Still we know very little about others. We are still in the path of our own. We still believe in our differences. Just because we were colonized, does not mean we are better. Just because we are victim of racism, does not mean we are not racists. Just because we were enslaved, does not mean we are not abusers of our fellow Africans. We are all those things. We are exactly like them. May be worse.
I believe peoples are complementary beyond what we can imagine. Without this complementary, human being would have destroyed himself long ago. Therefore, learning from others is essential. You learned from others, if you believe that you are like others. You do not learn from others, if you believe you are different. History only serves the minds of those who humble themselves. So being last is not a big deal. The harder you try to separate yourself from the rest of the world, the quicker you fall backwards.

A thought for my people

I was born in Kinshasa in the Democratic Republic of Congo (DRC). My parents are from the coastal province of the Nether Congo. Neither too politicized nor too militarized, the Nether Congo is symbolically important in the making of the Congo. Congolese do not travel a lot, but for those we can and do, the cities of the province are privileged. The proximity to the capital Kinshasa is surely an advantage. But the province lacks a real political influence. To exist as a province in DRC, you need to be in the military. The true power is in the hands of the gunmen. The inhabitants of the Nether Congo known as NeKongo are not trained to violently impose their views. They tried lately with Moanda Ne Nsemi, but went nowhere. The strong and bloody military action against the NeKongo was silently supported by many fellow Congolese who feared the idea of another Congo with an independent Nether Congo.
It is difficult to both mourn and understand. When you hear that your people was murdered because their opinions found no place in the minds of those in power, you walk silently, and questioned the sense of belonging. You want to find excuses for your fellow Congolese who went to re-install the rule of fear. You convince yourself that anyone who speaks against the existence of the Congo as it is known to all of us should die. If they are few, they can be imprisoned. If they are more than hundreds they should be killed. In the shoes of those in power, the order is re-established when the jungle is silenced. No one speaking out his mind is the state of mind that should help fellow Congolese in power to work harder for the better. After all, if the sacrifice of hundreds killed in the Nether Congo can serve the interest of the majority why not. I hope really that those souls resting from the misery of the Congo are not better than those still in power inventing new methods to tyrannize the mortal among all mortals of the earth.  

Lost comparative advantage

The law of comparative advantage is a law of relative maximum. Countries can choose the best production combinations among all available possible production combinations. But such a combination must not be rudimentary in the sense of a best single combination of two commodities. The best combination must be at a point where production possibilities curve cross. Such a combination represents an interesting  portfolio combination point.
In introductory economic courses, only one production curve is drawn and shown. However, policy makers see many possible economies coexisting at different levels. Such a view is not a blue-sky contemplation since these curves are forcefully nonlinear. Multiplicity and non-linearity are due to variation of different orders.
A first order variation gives rise to an exposed economy. Not because nature is first-order, but because our perception limits our view, understanding, and action. Such an economy is rudimentary with curves best represented by vertical lines crossing horizontal lines. I guess before the industrialization era, economies around the globe were not leveraging on uncertainty, risk, and the unknown. These economies produced simple production combinations that possibly could be moved along an horizontal line.
A combination of the first order and a second order variation gives rise to a satisfactory economy in a world where human being is excused for extreme events. The 18th, the 19th and the first part of the 20th century were dominated by the view that the economic structure is both first and second order. Tools and institutions were introduced and developed to set up and to manage new economic structures. Unfortunately, many countries in Africa kept the first-order view as a benchmark in dealing with economic and political affairs. Worst people in these countries are afraid of leveraging on uncertainty, the unknown, and the hidden. Since beliefs are important vehicles of thoughts, these countries lost the comparative advantages they had prior to the emergence of the first and the second view elsewhere in the world.
In fact, we have already moved away from a paternalistic view of the economy. Policy makers became aware of the existence of a third and a fourth order of economic variation. We are almost there in modelling a world economy that is resilient to the first, second, third and fourth orders of economic variation. Clearly, we do not excuse ourselves for extreme events. We do not say is not our fault. We know now that extreme events can be prevented. We know we have to be prepared to face extreme events when they arrive. We take full responsibility in what may happen.
The point of what was said, is that a country that ignores the management of risk is in trouble. The country has no a comparative advantage. It will produce at higher costs. Importing is cheaper than producing. This may explain why African countries are getting poorer. They have lost the comparative advantage of pushing themselves into the future.

Devastating Internet

According to the Congolese Constitution, there will be a presidential election in 2016 in the Democratic Republic of Congo (DRC). The Congolese diaspora cannot wait the day and the time, the incumbent president will leave the office. The year 2016 is in the mind of the Congolese diaspora, the beginning of a new era for the country as a whole. Some believe with Kabila stepping down, Congolese will come together and establish the rule of law.
President of the Congo since 2001, Joseph Kabila's reign coincide with the use of Internet at a large scale. He and his staff were not prepared to communicate through Internet. They came from a generation who believed in hardware, not in software. They missed the whole point of being leaders in the 21st century. Unable to develop a modern strategy, they mocked people who insulted the president. They were unable to use Internet as a tool to reach out, as a converter of dark thoughts. They badly failed to cat short damaging rumor. They surely have succeeded to keep Kabila alive. The Congolese Diaspora could not reach the president physically, but they did bring his presidential image down. They have counterfeited his Internet image. As a result, Congolese has a perception of Joseph Kabila that is surprising for someone who has been president for 14 years. He is a complete stranger to his fellow Congolese. Since nature abhors a vacuum, stories were invented, stories were perverted, and a new image was developed.
Joseph Kabila will step down soon or later. However, he will not go down in history as a Congolese who fought for other Congolese. This could be wrong. But what can you do against an image that is broadcast when there is no one else to convince you to the contrary. The Congolese diaspora has defeated the president team. They have corrupted the minds of the majority of the Congolese leaving abroad. They have put in the mind of thousands of people that Joseph Kabila is a traitor. They have convinced a large number of Congolese that he is an usurper. Those around the president do not obviously care in line with the saying "the dog bark but the caravan moves". The question is who is in the caravan? Where the caravan is moving about?
It was in 2001 I met Joseph Kabila when he visited Finland. Me and my fellow Congolese did what we could to meet the young president. There is no much to say about what he said then. I think he could not believe his eyes that Congolese was living in a country known for his supposedly cold winter. Some of my fellow did try to make this visit a beginning of something, but as far I know most of the initiatives did not go very far. Anyway, when Kabila came to Finland, I was doing my PhD at HANKEN, and did not give much thought to what he said or he was.
People who met Mobutu like to say that Mobutu was charming and warming. He will make himself a fanatic supporter of the Congo. The same thing cannot be said about Kabila. Now people cannot be compared in terms of either what they say or how they look. Nonetheless, it is a shame that the team around Joseph Kabila did not fabricate a better image for their champion.

Cost-benefit tradeoffs

The notion of cost is not well translated on social issues. How many times we have heard a politician promising one thing and almost doing the opposite once elected? In our times, despite all the communication medias, the notion of cost is still elusive. The cost is of course for the other guy to stand for if we even have the decency to admit that there is after all a cost attached to every benefit.
Peoples choose their representatives on a menu where policy benefits are underscored and the cost wrapped in a prosaic form. For instance, a politician directing attention on an immigrant will almost succeed to hide the true cost of a policy.
Do not ever ask a politician how a certain benefit will be achieved. He will rapidly diverge to identify areas where savings can be made. These areas are always where the most vulnerable in the society lives, gets her/his bread, and has her last treasure. It always she the bad girl. In countries where immigrants are visible, politicians are almost blessed. Lots to say about them.
Immigrants are by no means innocent. They are for the most opportunists. They should be as nothing has been prepared for them. They come to and live in countries where their presence is a disturbing factor. Politicians taking the opportunity to score political points will portray immigrants as the source of all ill in the country. People are literally flattered when a politician has the courage to speak out. It seems it requires many years of study to insult somebody. But as for the true cost, no one hear about it. If someone insists on how the benefit will be realized, the answer comes easily in the form of a tirade, not as an economic figure.
I always think that politicians are the lecturer of the society. They should explain until we understand why we cannot get it. They should tell us that the cause is just but too expensive. We cannot go there to colonize when on our planet we do not why we go to war. Unfortunately, the cost of a policy is never clearly stated in a language that it is understandable to all.
To my view politicians of these years are more like biased CEOs. They are proud to present figures in billion of dollars. What a billion? It is not a dollar multiply by 1000000000? No, politicians will not take the risk of stating it in a dollar terms. They cannot say that we have a dollar, but we spend 1.5 dollars. Since we do not have the 0.5 dollars, we have to borrow from the rich guy and pay back with interest. If we don't pay the 0.5 dollars soon we will need to borrow more to pay interests since the rich guy has agreed upon to keep his savings for ever. In the end we will be serving the rich guy as his saving will be growing faster than our dollar we start with. We will end up being slaves of an unknown citizen. May be we are about there. Our dollar has long ago been lost. We are in debt both to the planet and to some of our fellow citizens.
I came to realize that the awareness of a cost disappears the larger the economic figure. My students for example when asked to come up with an investment idea will almost automatically propose an idea requiring $1 million in investment. I will ask them if they do have $10,000 in savings. They will often admit that they do not have even a $1,000 in savings. Then I will add. If you invest $1 million, it means the cost is at least $1 million. Are you aware that the higher the investment, the more resources are engaged? Some of them understand that you cannot pretend have an investment idea when you need so much money. A person starting a business with million of dollars is not to my view an entrepreneur, he is a capitalist. Good ideas require relatively less investment.
In all these, the notion of true cost is often absent in the mind of a capitalist. For this category of people, only profit matters. If you invest billions of dollars, and you can generate a billion dollar, the project is worth undertaking. Here again the true cost will not be considered. Even when our planet is under pressure, some capitalists still consider that the current benefit economic model does more good than harm. While there is a stock market for the good stuffs, there is no market to trade the social cost of a planet in bad shape. With a suffocating planet, we need a cost economic model that considers the true cost of getting richer and richer. In stead of discounting future cash flows, we should discount future costs. If the discounted costs are greater than current benefits, the investment should be rejected. This is what I call the Net Present Cost (NPC) model.
The more you read, the more you realized the complexity of human brain.
I cannot help it, but wonder if we will ever be aware of something call the cost of living on a planet that is not ours since we find it with our birth. We go about our world's business as if there was not a cost tag to our lifestyle. We see things appearing, and other disappearing without reflecting on ourselves the ephemeral nature of our existence. If we were the owner of the earth it should have been known long ago. We could fix the fundamental problems of our planet. We are simply arrogant agents who went ahead of the true owner.
We spend each dollar of the nature without showing any form of gratitude. We consider nature to be in our services. Those insects working for us, get of course not pay. We could give them a year of reproduction. They could enjoy themselves for a decades without the need to stop their own natural cycle. But we want them to work to death. Can they speak these insects burgeoning for us? Can they contest these bees making our planet colorful? May be they do in their own ways. But the agent has not developed a language to understand them. He wants them if possible to speak his mother tongue, not the other way around. The agent  is literally cheating on the principal.
The true cost of our life is hidden. We live, we die, knowing all about what we want, but little on what we loose. Because the cost is latent. More true than the benefit. We may think there is no cost when in reality a cost is first engaged before any benefit appears. We cannot put a number on each cost, but we can at least be aware that such a cost exists. Economists talk about the social cost, which includes the explicit and the implicit costs.
The cost is there when we introduce a new policy. It is there when we remove a policy. It is about awareness that there is a trade-off. If our education was based on cost awareness, we would have lived in a better world. But since our education is about awareness on gain opportunities, we tend to desire more and more.
Finally, if we are people who elect with our brains, we should always vote for policies where costs are underscored. We should always talk about the cost of getting there. It can be even in extreme case where we want all the immigrants out. We should have the courage to state the costs of getting them out. How big is the benefit of being among ourselves? A politician claiming to do the right thing, but failing to state the nature of the cost must be taken as a meaningless talkative person. Only the awareness of the true cost will save the democratic system in which we are in this part of the world.
We may harm people, we may like them, we may hate them, and we may ignore them, but we should never forget about the cost. There is no benefit without cost.

Neutrality

There is almost no good news being neutral. Nature does not make a difference. It hits blindly. It does not remember the neutral guy (the good guy). Almost in every catastrophic event,  nature fails to save the neutral guy, in particular. If it does, not in the name of neutrality. Anyway, even when we are neutral, we are not really neutral because we are part of a much bigger system of things and thoughts. We are as individuals too small to be really neutral in life. Many people suffer losses not because they have done something wrong.
A country like Switzerland is politically neutral on the international arena. However, if you consider the time when the world was clearly divided in two blocs, Switzerland did choose a bloc to belong to. Switzerland was not neutral by being in the middle of the two blocs. Switzerland was neutral in the Western bloc, which makes a difference. Neutrality in the case of Switzerland means that the country did not choose the most active role in its bloc of influence. Being neutral does not mean you do not belong somewhere, you do not share something, you do not take action of some sort, and you do not take part of something bigger than yourself.
People try also to be neutral economically. You hear people saying that they prefer to keep their savings under the madras than earning an interest on it. They are too afraid to lose their savings. They think they have a neutral investing position by keeping it home. Actually they have a negative investing position. A neutral investing position is only at the point where positive outcomes are counterbalanced by negative outcomes. Not investing is by no means safer.
Take a booming economy. People who chose to invest make up for possible past losses. They have the opportunity to put some money aside. With a booming economy, a larger number of projects are undertaken as the opportunity cost of capital is lower. If someone choose to be however neutral, he/she will not make any extra income. Nature will not recognize the person as being extra careful.
Now take an economy in recession. People who chose to invest may make some losses. The risk is higher, the opportunity cost of capital is higher, and fewer projects are undertaken. Unemployment is higher. Guess what? Neutral people are not better off. They are even worse off. Nature does not again reward them for being wiser. She hits them badly.
So, it does not pay being neutral. You can lose by investing, but the likelihood of losses are lower than the likelihood of not investing. If you do not invest, you are not making a wise decision. This goes beyond the simple fact that inflation eats away some of your idle savings. The dollar you make in good times should help you in bad times. This is the profound sense of being neutral. Neutralizing negative forces by positive forces. 

CableVision

I bought a satellite receiver (Strong, STR 4930) from CableVision the other day. I took the receiver home and went on the website of CableVision to learn how to scan channels under CableVision. The instructions are pretty straightforward. However, these instructions would be incomplete if among the list of the satellites there is no CableVision. Years ago, I was good at searching satellites and scanning channels. But since I moved to Canada I lost these skills.
I thought I could by myself scan channels, but great was my surprise not to be able. Actually, I could scan channels from a number of satellites, but not those that my card from CableVision could unscramble. An exception was 13.0E HOTBIRD 13ABC, where I did scan some channels, but not the channels of interest (beIN sports).
I went to the company and told people there that I could not find CableVision among satellites. The guy who I talk to was surprise that there was not CableVision (I know now that they did not set up the receiver). He tried my card and told me that it was fine. I thought my card from CableVision will unscramble channels regardless of the satellite where they are located. I was wrong. The card can only unscramble those channels under CableVision. Since the guy could not solve my problem, he called a technician to help me in this matter. The technician called me and tried with me to find the signals under CableVision. For some reason, he could not help. He promised to transfer my case to the company. A day after, the company called me to fix a rendez-vous and promised to send someone as soon as possible. Since then, two days have passed.
This evening I solved the problem by myself. I understood already that CableVision is not a Satellite by itself rather a set of frequencies allocated to CableVision. I also understood that it does not matter which satellite I choose as long as I give it another position on disqc. As long as the satellite has those frequencies I will be able to scan those channels. So the first thing I did is to search for a satellite that I know has those frequencies for Lebanon. So I choose NILESAT, which I renamed as CABLEVISION that appears in the list of satellites now as 7.0W CABLEVISION. Thereafter, I made sure that the position of CABLEVISION is number 2 on the disqc.
To rename a satellite, go to Dish setting, press the red button (rename), and use the keyboard to rename. After renaming, press exit.
To scan, move to "Manual scan", Press the green button or move to frequency and press 1 on the remote control and say yes to add TP. You will get the zeros (00.000).
Use the remote control to fill out the zeros.
The frequencies are 11.720, 11.760, 11.800, 11.840, 11.880, 11.920, 12.000, 12.040 and 12.080.
The symbol rate for each frequency is 30.000, and the polarization is H for all.
When you have filled 11.720, 30.000 and H, both the level and the signal should turn green and strong (97% in my case). If not you are on the wrong satellite or disqc position. You have to find the right satellite of your region. I did find the signals for all but 11.880.
To scan the channels, press OK after each frequency is saved. If you want you can exit and try if the channels are unscrambled. beIN sports are on 11.720.
I hope this helps. Good luck.  

Risk-free rate of return

There is nothing in nature called risk-free rate of return. First, a risk-free asset can be formed by holding a portfolio of assets that is perfectly negative correlated with another portfolio of assets. Second, a risk-free asset can be a result of a country's economic policy. While a combination of portfolio resulting in a risk-free position is on solid economic premises, a risk-free asset stemming from a policy is difficult to swallow. Many governments around the globe have issued their versions of risk-free asset with outcomes that are mixed. Yes every government has the monopoly to print money, but not every government can print money without triggering inflation upwards. Therefore, a credible policy for a risk-free asset must meet the premises of perfect correlation in negative and positive movements. Clearly, the government overpays when the economy is on its fall, but underpays when the economy is on its rise. A declining economy kills the risk-free asset. So, the risk-free asset as an a policy is an expression for an economy that is solid on its fundamentals. 

Virtual burden

Greece has at least the merit of admitting that it is dying as a country. Somebody may ignore the cry, but those are true tears. We are living in a strange world where it is defended to admit that the impossible is not possible.
At this point, it does not matter if Greece wrote its own drama by joining the Euro. What matter is to give some hope to Greece.
Opting the Euro out is not the solution. This should be done when the economy will stabilize. But which government will opt the Euro out when things will start falling in place. I doubt this will ever happen. To my view, Greece should stick to the Euro independently of the economic situation. The Euro is the future, the drachma is gone.
Somebody has said that if Greece abandoned the Euro it will cause a global crisis. This cannot be true. It will not even cause a major crisis in Europe. How much was the lost in 2008 at the worst of the sub-prime crisis? Much more.
It will be unpleasant for the lenders to write off a part of the debt, but in the end everybody will be better off, if a part of the virtual burden is lifted off. Maintaining the principal of debt at its current notional level is only a psychological burden, as everybody knows that Greece will never pay its debt in our life time.
For generation the debt will be overhanging. If Greece must pay off its debt in 1,000 year, it does not matter if the EU spreads the burden across 1,500 years.
The most important thing is that Greece will economically breath, and the bondholders will continue receiving their interests. 

Austerity

A strange feeling born in me when I connect whatever word with a being living. As long as the word expresses a general idea, it is there inoffensive. But once the junction between a word and a being is made, it puts me sometime in despair. Take the case of the word "austerity" that is much used these days in continental Europe. It means the state or quality of being austere. In the ancient world, being austere was a spiritual exercise. People who chose to be austere lived and moved with very little. They traveled light. They will often go to and live at a place where they could be alone with their own mind. I guess austerity was a way up, not a way down.
Austerity in economics means a drastic reduction of the budget allocated to some social expenses. Such a reduction is often operated to reduce the debt burden of the state or worse to pay interests on the accumulated debt. Paying its debt send a positive signal to capitalists who may lend more to the unfortunate victim. It is a vicious circle in a situation where there is no growth. More debt will be contracted to pay more interests.
There is no social justice in this word. The poorest who cannot pay and the richest who want not to pay are the only beneficiaries of an austere economy. Those in the middle suffered most as the burden of the debt is on their shoulders. I understand why it does not feel right to pay off a debt when you are completely broke. First, you borrow to pay the interest on the debt. Second, you are asked to continue borrowing in order to be able to pay in order to be able to borrow. And the story goes on. It is a huge credit card. A revolving debt without an end. You pay your debt generation after generation until someday the world enters in a new revolutionary era.
Let me give an example. Suppose a budget of a country is $1,000. Remember a budget is just a projection of expenses and revenues. Nothing guarantees that revenues will match expenses dollar for dollar, and period for period. It happens most of time that expenses are engaged first, and revenues follow suit. There is a delay between the moment a dollar is spent, and the moment a dollar is collected. Government must cover imbalances by borrowing.
If the government is efficient at collecting taxes and other revenues it may by the end of the year balances its budget. If the government is inefficient, the deficit will grow. Suppose that revenues are only $800 when expenses are $1000. The difference $200 will be covered up by borrowing at a positive interest rate. If there is a functioning internal financial market, the $200 will be obtained domestically. If there is not an internal financial market, the $200 will be borrowed internationally.
The $200 is the principal. In order to pay off the $200, the government must borrow next year at least $400, holding everything else constant. If the situation in the country is such that the population grows, but there is not economic growth, the government will borrow a year after at least $800. At one point in time, the government will exhaust the internal market. It will go international, if only possible. In fact, if nothing positive occurs, the debt will accumulated to $1600 in the 4th year, which indeed is greater than the budget of $1,000.

Back to Beirut

I spent a sabbatical semester in Montreal at HEC. Now I am back in Beirut at the Lebanese American University (LAU) for about three months of teaching before going back to Montreal for a summer break.
What a contrast being in Beirut and Montreal? Not much for what they stand for as city of old and new. Yeah Beirut is an old city compared to Montreal. Here modern history has its philosophical and scientific roots.
I am less stressed arriving at Rafic Hariri international airport than at Pierre-Trudeau international airport. Surely officers at Trudeau know what they do, but sometime I wonder for what purpose they do the little extra that make you feel that you are suspected for something they cannot name. I guess for a first time at Trudeau, it must be a whole experience. At Rafic Hariri airport, nobody asks me questions for which answers are already provided on the customs card. I hand in my passport and residence card to the officer behind a box, the officer check something on his computer, look at me, stamp my passport, and give back my documents except the stamped customs card. The customs x-ray my suitcases from time to time. This time it took me in total 15 minutes to get out of the airport.
The time the taxi-drivers at the Hariri airport reaped me off is gone. On my arrival I call Allo Taxi (1213), and order a taxi that arrives in the 5 or 10 minutes. I pay $20 maximum for a trip to Hamra or Raouche. I think the official rate must be 20,000 LBP.
It can be difficult for a foreigner to settle in Beirut in her/his first year. Last year I was paying $650 for a room plus a toilette and a balcony in Hamra. I liked the place. The manager of the place is honest and very helpful. Unfortunately, I could not move back there. The room was taken. In Hamra such a room cannot be empty for long. So I went back to my old place in Raouche at Universal Residence. The manager wanted me to pay $1,200, I refused. Since I promise to stay longer, we settled for $1,000 for a studio having in it a living room combined with a bedroom, a kitchen, a bathroom, and a huge balcony giving on Australia street. From the balcony I can see the former Saudi Embassy, and the burn-down Future TV. From my Kitchen, I have a partial view of the Mediterranean sea. If you compare what I was paying and what I am paying now, the $350 difference is somehow covered up. I have more space, I have a better view, I have large windows giving me plenty of daily light, and I have house helpers.
Settling down means being connected. The university offers Internet but I cannot be satisfied with that. Some year ago, I will stay at campus longer than I should, but because I have to Skype my family back in Montreal, Internet is a must. Last year I was using a very slow Internet that was provided by one of the mysterious Internet providers in Beirut. I could not use my Cyberia Box as the signals was too low. So this time I decided to acquire a Touch dongle (a kind of USB key charged with Internet data). I really thought it was all easy to get one, but it is not as everything else in Beirut. Touch gives on its webpage representatives but some of them do not sell the dongle. I went to the one in Raouche (Talaco) on the same street where I am staying. First I bought a dongle for 45,000 LBP ($30). Second, I have to acquire a SIM card for data (my passport was needed for that and having a line already was a must). The SIM card comes with 1.5 GB. I did pay another $10 dollars to have 5 GB. In total it costed me as much as announced on the website. The guy at Talaco did activate for me the SIM card. Back home, I plug into my computer. I thought it would be direct. No. You have to install the software, restart your computer, and on the dialog box click on an Internet icon. Let see how long the 5 GB will last. May be I need 10 GB for a month as I am not a heavy user of the Internet. That is for this first week in Beirut. 

Kinshasa saigne

Lumumba est mort pour ça? 

Trois jours de violence à Kinshasa ont fini par montrer ce qui suit:

·         La différence entre un gang de rue et un gouvernement est inexistante. Armes à la main

·         La différence entre un club et un parlement est nulle. Secrets bien gardés

·         La différence entre un émeutier et un terroriste est quasi nulle. Kalachnikov pour deux

·         La différence entre un citoyen libre et un mercenaire est insignifiante. Manifestation interdite

·         La différence entre un humain et un animal est nulle. La mitraillette plus efficace

·         La différence entre une loi et un ultimatum est nulle. Les deux textes sont exécutoires.

Pour cette fois encore, l'impuissance nous habite.

·         Le pays est grand mais il est devenu tout petit.

·         L'agneau donna ses raisons mais le loup le mangea sans aucune forme de procès.

Reposez en paix chers compatriotes, partis pour avoir demandé si peu.